Tarda demands Sh9bn from power firms

Monday November 18 2013

A shot of Masinga Dam overspill in Machakos County on April 19, 2013. The Tana and Athi Rivers Development Authority (TARDA) has directed that residents along the banks of the Tana River to relocate to higher grounds for safety. The spillage has been due to the heavy rains being experienced in the country. Photo/SALATON NJAU

In Summary

A regional development body is demanding Sh9 billion from two utility firms over their failure to honour contractual agreements, which it says has undermined its financial status.

Tarda laid blame on the two firms for the failure to implement a contract signed in 1978 and another in 1988 requiring them to pay rates to the authority.

It complained that the deals were not honoured, leading to spiralling of debt that has restricted its ability to raise revenue to offer services to citizens.

A regional development body is demanding Sh9 billion from two utility firms over their failure to honour contractual agreements, which it says has undermined its financial status.

The long-running dispute pitting the Tana and Athi River Development Authority (TARDA) on one hand and the Kenya Power and the Kenya Electricity Generating Company (KenGen) on the other came before the parliamentary Public Investments Committee on Wednesday last week after it was summoned to show cause why it should not be wound up owing to its mounting debt.

Tarda laid blame on the two firms for the failure to implement a contract signed in 1978 and another in 1988 requiring them to pay rates to the authority.

It complained that the deals were not honoured, leading to spiralling of debt that has restricted its ability to raise revenue to offer services to citizens.

Tarda managing director, Mr Steven Ruimuku, was defending the financial position of the authority that the PIC says might have to be dissolved for failing to meet its objectives.

No compensation

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Mr Ruimuku told the committee that the authority had set up Masinga and Kiambere reservoirs as part of its mandate of establishing an integrated water management system for development of the communities in the catchment areas, but it was stripped of the two projects without the compensation.

Tarda’s generating equipment, valued at Sh12.8 billion, were transferred to KenGen as well as transmission assets worth Sh520 million to the then Kenya Power and Lighting Company (KPLC) without compensation, he said.

“It is only fair and justifiable that the outstanding claim this authority is demanding from Kenya Power and KenGen amounting to Sh9 billion be released under an agreeable framework,” he said.

He added that KenGen should pay Sh420 million annually to Tarda for loss of its assets.

Kenya Power has, however, argued in its reply to the PIC that it was directed by the government to pay the Kiambere power station loans directly to the Treasury to avoid escalation of power tariffs and the government would, in turn, meet the financial needs of Tarda.

“Further, Tarda, Kerio Valley Development Authority (KVDA), and KenGen were fully owned by the government.

The government transferred to KenGen the interest, titles, and liabilities of the two bodies, including generating assets, land, and buildings upon which Masinga, Kiambere, and Turkwel hydroelectric power stations are situated.

The dams at Masinga and Kiambere were not transferred and remained under Tarda.

The water reservoir remains the property of the Ministry of Water,” a letter presented to PIC prepared by officials in the energy sector that include the Cabinet secretary for Energy and Petroleum, Mr Davis Chirchir, says.

They said the contractual loans for the building of power stations were fully serviced by KenGen.

“As KenGen took more assets than liabilities from Tarda and KVDA, the excess of Sh10 billion was converted to equity in favour of the government in KenGen,” the letter says.

Self-sustaining in the past

The managing director said that before 1988, the authority was self-sustaining from its internally generated revenues.

A letter by the permanent secretary dated July 10, 1989 said Tarda was able to finance its recurrent budget and fund a number of its projects from tariff agreements and, therefore, did not rely on the government.

“Immediately Kenya Power disregarded the lease and government agreements in 1988 and eventual transfer of the power generating assets in 2000, the finance base and solvency of the authority was incapacitated,” said Mr Ruimuku.

An audit report by the World Bank in June 1995 said “Tarda has been insolvent since KPLC stopped honouring the lease agreement (1988) and its audited accounts have been qualified.”

Mr Ruimuku said the body signed a commercial agreement with Kenya Power (then KPLC) for the sale of bulk energy on July 5, 1978 from Masinga Dam, and later in 1988 after commissioning Kiambere Dam, they signed another which bid KPLC to pay 32 cents per kilowatt hour through lease agreement signed on December 30, 1983.

He said KPLC started dishonouring the commercial and lease agreements with Tarda, leading to insolvency that has dogged it to date.

“Kenya Power and KenGen started occupying Tarda’s 193 rental houses, canteens, and halls without paying rent for their use.

This resulted in a loss of Sh780,000 per month that has accumulated to Sh225 million by the end of 2012,” said Mr Ruimuku.

He said the two power utility firms should as observed through several correspondence between the parliament, World Bank, office of the president and the Treasury honour commercial and lease agreements to enable the authority return to financial stability.